New FINRA rules aim to protect seniors and other vulnerable market participants

• Published in: The journal of investment compliance Vol. 19; no. 4; pp. 17 - 21
• Main Authors: Brown, Brant K, Anderson, James E, Bullitt, P. Georgia, Cottrell, Amelia A
• Format: Journal Article
• Language: English
• Published: Bingley Emerald Publishing Limited 29.11.2018; Emerald Group Publishing Limited
• Subjects: Broker-dealers; Trusted contact person (TCP); US Securities and Exchange Commission (SEC); Financial exploitation; Seniors and other vulnerable adults; Financial Industry Regulatory Authority (FINRA)
• ISSN: 1528-5812; 1758-7476
• DOI: 10.1108/JOIC-06-2018-0043

Purpose To explain two new Financial Industry Regulatory Authority (FINRA) rule provisions, effective February 5, 2018, that were designed to provide firms with more effective tools to address suspected financial exploitation of seniors and other vulnerable adults, a new Rule 2165, Financial Exploitation of Specified Adults, and an amended Rule 4512, the “Trusted Contact Person” amendment. Design/methodology/approach Mentions FINRA’s and US Securities and Exchange Commission’s (SEC’s) longstanding concern about schemes targeting the financial assets of seniors. Provides an overview of the rule changes, including the safe harbor under Rule 2165, which specifies the conditions under which it is permissible for a firm to place a temporary hold on a disbursement, the obligations generated by the decision to place such a temporary hold, and the requirement under amended Rule 4512 for a firm to make reasonable efforts to obtain the name and contact information of a Trusted Contact Person (TCP) for each non-institutional customer’s account. Findings The new FINRA rule provisions create obligations for firms and also provide firms with optional additional tools to address potential financial exploitation of certain customers. Practical implications Firms should be mindful that they must develop appropriate procedures, controls, and training around the authority to place a temporary hold on a customer disbursement. Originality/value This article contains valuable information about recent FINRA rule changes and practical guidance from experienced securities lawyers.